It’s not the popular view, but higher inflation and higher interest rates are coming
By George Athanassakos * I know what I am about to suggest will go against the grain. But I am a value investor and used to expressing a view that runs counter to the consensus. On June 10, the U.S. Federal Reserve indicated in very clear language there would be no rate increase through 2021 and possibly 2022. Everyone, however, is convinced that inflation and interest rates will remain low for much longer, well beyond 2022. I beg to differ: Higher inflation and higher interest rates are coming. Let me explain. The nominal interest rate is the reward one expects for investing in bonds. The reward has three parts: the real interest rate (reward for postponing consumption for the future); the premium you get for expected inflation (reward for possible loss of purchasing power); and the risk premium (the reward for possible loss of capital). I will ignore the risk premium here, as normally it does not apply when dealing with government bonds. In the short run, the real inter